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What is ATOL and how could it have helped Monarch's customers?

27 Oct 2017

5 minute read

In our recent blog post on Monarch airlines, we discussed the key stakeholders and creditors affected by the business’ collapse. Unsurprisingly, Monarch’s customers were one of these groups with 110,000 passengers stranded abroad following the administration and a further 750,000 customers having their flights with the airline cancelled.

The impact for those customers stranded abroad was minimal following the Civil Aviation Authority’s ‘biggest ever peacetime repatriation’ to rescue those individuals. However, the impact on the 750,000 whose future flights were cancelled all comes down to whether their booking is protected by ATOL – the UK’s Air Travel Organisers’ License scheme.

The scheme is shortly due for its most substantial overhaul in almost thirty years, as the UK implements the 2015 EU Package Travel Directive. As this new directive makes a number of changes as to how we should book our package travel arrangements, we consider how the proposed ATOL reforms would have protected those affected by the Monarch collapse.

ATOL today

In short, ATOL is a consumer protection scheme for travellers. Under the present scheme, UK travel companies selling flight "packages" to UK customers must hold an ATOL licence and pay £2.50 per ATOL-protected passenger to the Air Travel Trust Fund (ATTF). When an ATOL licensee such as Monarch fails, the CAA draws funds from the ATTF to repatriate customers and issue refunds for future ATOL protected bookings.

At present, the concept of these flight packages includes traditional package holidays and "Flight-Plus" packages (where a customer purchases a flight and returns to the same vendor within 24 hours to purchase travel services such as accommodation or car hire). In certain circumstances, flight-only sales may be ATOL protected, but the ATOL scheme generally excludes them.

Reports suggest that less than 50% of Monarch customers were ATOL-protected. Unless those customers can call upon their payment provider or travel insurance, they are likely to be left out of pocket.

What would the new ATOL scheme have changed?

Had the Monarch collapse occurred on or after 1 July 2018, a higher proportion of bookings would likely have benefitted from ATOL protection.

Over the past year, the Department for Transport has carried out two consultations on modernising and updating consumer protection in the UK package travel sector, with the currently awaited outcome likely to propose amendments to The Civil Aviation (Air Travel Organisers' Licensing) Regulations 2012 (Regulations). As the Regulations are secondary legislation, the consultations envisage that these amendments may be made "quickly". The Air Travel Organisers' Licensing Bill, which will amend the Civil Aviation Act 1982, is also making its way through the House of Lords, with the committee stage having just started. Together, these measures will implement the Directive by 1 July 2018 and modernise the UK's consumer protection framework for travellers.

At this stage, it appears that there are likely to be three key changes to the current ATOL scheme:

1) The scope of a "package" is likely to be extended to the following customer purchases (pending the outcome of the second consultation):

a bundle of travel services from the same point of sale, paid for as a single package;

package holiday gift boxes, where the accommodation is chosen after purchase; and

a single travel service from provider A and a single travel service from provider B, where provider A transfers the customer's personal data (including payment details) to provider B. Provider B targets the customer, who makes a 'click-through' purchase from provider B within 24 hours of their purchase from provider A.

2) Each component of Linked Travel Arrangements (LTA) will benefit from
ATOL protection.

An LTA is created where the customer:

chooses travel services from separate providers, through separate contracts and transactions, but which are facilitated by one trader; or

books a travel service from provider A and is then directed to provider B to buy another service for the same trip within 24 hours of the first purchase, without the customer's data being transferred to provider B.

If a provider fails, customers will only be refunded for that component of the LTA. However, to minimise risk to the ATTF, it is proposed that the Government will be able to create a separate trust to hold LTA levies.

3) ATOL protection may extend to customers who are based outside the UK but who book through a UK operator or agent.

The Directive requires mutual recognition of insolvency protection between EU Member States. It is not yet clear whether this will apply to all packages that the UK reforms protect (which go beyond the scope of those mandated by the Directive), but the measure means that customers located in, for example, Spain, who book a flight package will benefit from ATOL protection.

It will be little comfort to disappointed travellers out of pocket from Monarch's collapse, but under the ATOL reforms:

A greater number of bookings would likely have been protected by the ATOL scheme, namely passengers who purchased a flight as part of some sort of bundle (likely an LTA) which presently does not qualify as a package – for example, someone who booked a Monarch flight and then separately a hotel from a different supplier, but all facilitated by one online travel platform. The broad scope of the proposed UK reforms mean that the proportion of ATOL protected bookings affected by an incident such as the Monarch collapse could have been substantially higher.

Overseas customers who booked qualifying travel would be able to call on the ATTF for compensation. So, a Monarch customer in Spain who, for example, booked a flight to the UK then (within 24 hours) "clicked-through" to book a hotel would be able to call on the ATTF, rather than having to seek compensation from the Spanish equivalent.

Pure flight-only bookings will continue to fall outside the ATOL scheme. So, as now, travellers will need to check whether their travel insurance covers financial failure or rely on protections offered when using credit cards for flight bookings. While Monarch's collapse has led to renewed industry calls for a £1 levy on all flights to cover the cost of repatriation in the event of airline failure, it remains to be seen whether this will be revived, either as part of the ATOL reforms or as a separate government initiative.

The proposed ATOL reforms are not yet final and their true test will be a future financial failure. But applying them to the Monarch situation, the largest failure ever by a British airline, it is clear that the reforms would see the ATOL scheme catch up with how we now book and arrange travel.

Please note that this article is not advice and that travellers impacted by any of the issues raised need to get their own advice.